Despite tough economic times and a pullback in consumer spending, Amazon.com has continued to fare quite nicely, thank you.
While many other online merchants and multi-channel retailers have struggled, Amazon.com, No. 1 in the Internet Retailer Top 500 Guide, continues to post strong earnings and sales. Amazon in the third quarter reported net income of $118 million on sales of $4.26 billion vs. net income of $80 million on sales of $3.26 billion in the prior year. For the first three quarters Amazon posted net income of $420 million on sales of $12.5 billion, compared with net income of $269 million on sales of $9.1 billion in the prior year.
But even Amazon will not be immune to the ongoing slump in consumer spending, which is prompting one Wall Street analyst who follows Amazon to cut his sales forecast for the world’s biggest online merchant in 2008 and 2009.
Stephen Ju, the e-commerce stock analyst who covers Amazon for New York-based RBC Capital Markets, now expects Amazon to post sales of $19 million in 2008, down 5% from an earlier projection of $20 million. Because of weaker consumer spending, he also reduced his 2009 forecast to $21.8 billion, a decrease of 11.7% from a prior forecast of $24.7 billion. Amazon says its forecast for 2008 sales is from $18.46 billion to $19.46 billion. Amazon posted sales of $14.8 billion in 2007, up 38% from sales of $10.7 billion in 2006.
“We are lowering our estimates for Amazon given our most recent channel checks indicating deteriorating consumer sentiment in September,” Ju says in a recent research note. “The change in consumer behavior does not seem targeted at one segment or vertical, but is a broad-based decreased willingness to spend.”
In his research brief, Ju also warns that all online retailers regardless of size will be in for a tougher time in 2009.
“Our latest channel checks with big box retailers as well as e-commerce merchants in the midst of the negative headlines suggest that consumer sentiment and spending activity deteriorated further in mid-September,” Ju says in his research brief. “Whereas the shift in consumer behavior in the beginning of the year seemed targeted toward the higher ticket and discretionary items, the feedback this time suggests that the weakness is more broad-based. In other words, there is a general decrease in willingness to spend.”
Some online retailers will benefit from a recession by being able to grow their market share, he notes. Amazon’s sales will weaken in 2009, but not slip into a freefall. “Amazon is a retailer and it will feel the effects of the deterioration in consumer spending habits, even as it continues to gain share at the expense of its competitors,” Ju says in his research note. “Although Amazon's product selection is broad enough that we think it will be relatively more shielded, it is certainly not immune.”
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